Chancellor moves bank lending goal posts
A Treasury condition of the unprecedented bailout of the banks in the autumn of 2008 was that they should support the economy by providing additional loans to business.
Targets were set for the semi-nationalised banks: a net increase in business lending of £16bn for Royal Bank of Scotland, and a net rise of £11bn for Lloyds.
Those of you who work in business, especially if you run a small business, probably won't need telling that RBS and Lloyds failed to hit those targets - although, in fairness to Lloyds, new figures released today show that it did at least increase net lending (by £5.7bn) which wasn't the case for RBS.
Now the excuse of the banks is that demand from creditworthy borrowers just wasn't there - which is not wholly inconsistent with the complaint of their critics which is that they have become too averse to risk and have deprived valuable businesses of essential finance.
The big fact for 2009 however was that lending to business by banks in general was weaker than it has been in living memory, which has prompted concerns that any economic recovery could be tepid for an extended period.
So what has been the response of the chancellor to the Lloyds' and RBS' failure to meet those lending targets?
Well he has moved the goalposts.
The previous targets were for net lending: they required the banks to lend more than they received from loans being repaid.
And because the banks had to provide new loans greater in value than repaid loans, they were particularly demanding targets.
The chancellor has today ditched these net lending targets and replaced them with gross lending targets.
And it is perfectly possible for a bank to meet a gross lending target, while reducing the amount of credit it is providing to the economy.
So, for example, Royal Bank of Scotland has agreed to provide gross lending of £50bn to businesses in the year from 31 March.
That sounds a substantial amount.
But if RBS's borrowers were to repay more than £50bn, RBS could hit the new target and yet be shrinking the loan finance it is providing.
And of course the same argument applies to the £44bn lending target that has been set for Lloyds.
So is it the case that the new targets are in fact soft.
Well, not on the face of it.
RBS's gross lending to business in the current year has been £41.4bn - so the £50bn for the next period looks like a rise of more than 20%.
As for Lloyds, it has lent £38bn to business this year, so its new goal is a 16% increase.
So both RBS and Lloyds will claim they are doing their bit for Britain, to recognise how much they owe all of us as taxpayers for the lifesaving support we provided.
That said, they are repeating their standard caveats.
First that they will only lend to businesses they deem to be creditworthy - and their perception of creditworthiness may still be too cautious for the tastes of some.
Second, they will insist that they can take the business horse to water, but it won't be their fault (guv') if business does not want to drink.
This issue of whether businesses borrow is not a trivial one.
If they were not to want the credit on offer at the end of a recession, it would almost certainly mean that the recovery would be insipid to the point of being barely noticeable.
Update 15:02: So what would happen if the banks fail to meet their new lending targets. This is what the budget book says:
"If the Government's judgement is that either bank has failed to meet its lending commitments for year two, or has seriously breached the behaviours set out under their SME Customer Charters, the Government will inform UK Financial Investments Ltd (UKFI), which will work with the remuneration committees of the relevant banks to determine the appropriate consequences of the breach of the year two commitments or the Customer Charters for the relevant executives."
What on earth does that mean? Well the implication is that the government would use its shareholdings in Lloyds and RBS to force pay cuts on the banks' senior executives.
Which sounds tough. Though I suspect some of you would have hoped that the pay threat was more explicit.